Life In A Global Pandemic, Part 9

In Omnipotent Government, Ludwig von Mises describes how the foundation for a Nazi takeover of Germany was laid in part by large groups of unemployed men hanging around in militias. They say idle hands are the devil's playground, and that is probably true.

As of this writing, there are close to 40 million newly unemployed - or should I say disemployed? - people in the United States, thanks to "lockdown" or "quarantine" policies that we now know were far too draconian than they needed to be, given the severity of COVID-19. What have all those idle hands been up to lately?

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No one knows what was going through Derek Chauvin's head when he knelt on top of George Floyd in broad daylight, with cameras rolling, as the latter man begged for mercy and finally died. Chauvin and the four other officers involved in the killing were fired. As protests erupted in Minneapolis over the systemic mistreatment of blacks in the US criminal justice system, charges of third-degree murder were ultimately brought against Chauvin; although it's fair to wonder if the killing really was third-degree murder, and not second-degree murder as most reasonable people have concluded.

What an odd name, Derek Chauvin. Chauvin, get it? Like chauvinism.

And so protests erupted. Soon video emerged of white men, dressed all in black, wearing gas masks, and carrying umbrellas in the sunshine, systematically breaking windows with hammers and lighting things on fire before quietly walking away. On the videos, the peaceful black protesters try to stop them, but they can't. It is suggested by the various publishers of these videos that these disguised white men are the ones who turned the protests into riots.

Who were these men? The mayor of Minneapolis suggested that they were white supremacists from out-of-state. They might also have been members of "Antifa," which is not really an "organization," per se, despite news that the White House wishes to label them as a terrorist organization. Antifa is an ideology more than an organization. Those aligned with Antifa often show up at left-leaning protests and cause trouble. They ostensibly wish to fight anything they view to be "fascism," but their ideological agenda is a Marxist-Leninist one. So were those who started the riots in Minneapolis "members" of Antifa? Who knows?

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Within hours of the riots, the sympathetic left on social media took to their news feeds, their tweets, their status updates, and their stories to urge "people" not to condemn the riots, but to instead seek to understand why black victims of systemic racism in the United States would wish to riot in the first place.

I find this reaction to be odd.

It's odd because no amount of police brutality justifies a violent mob attacking innocent bystanders and looting private businesses. An argument could be made that Black America has a legitimate moral cause to destroy government buildings, court houses, police precincts, and the like. But stealing TVs? Such actions can only be morally justified on Marxist-Leninist grounds, i.e. according to the ideology of Antifa and its ilk. Private property is, according to this belief system, yet another tool of oppression, and it is fair and right, and perhaps even erogatory, to destroy it.

Of course, no one participating in a riot has spent any significant amount of time seeking epistemic moral justification for their actions. All they're really doing is seizing the opportunity. When "everyone else" is looting and destroying, you may as well get yours, too. Whoever started the riots knew this to be true of mobs, in fact they were counting on it. You only try to start a riot when you believe that the mob will follow-on with whatever destruction you've chosen to initiate. That's the whole point of inciting a mob.

It is for this reason that people should not seek to understand the rioters. Violent mobs don't have a cause. Violent mobs don't have a modus operandi. Violent mobs are breakdowns of social order, in which any terrible thing can happen. Looting and vandalism are comparatively modest outcomes here. The real dangers of a violent mob are murder and rape. Anyone who has any experience with a dangerous, teeming hoard knows this to be true.

Peaceful protests and violent mobs are in two entirely different categories. No, we should not seek to understand a mob. We should run for our lives, and then morally condemn them in the strongest ways available to us.

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I'm a 40-year-old American man. Sadly, this is not my first race riot. I am old enough to quite vividly remember the LA riots that broke out in the wake of the verdict in the Rodney King beating. Then, members of the Los Angeles Police Department were acquitted of using excessive force on Mr. King, despite the beating having been captured on video. If you're young and you've never seen the video, or if it's been a while since you've seen it, I recommend you remind yourself what was on that video. Watch it again, and keep in mind that the courts found the police not guilty of using excessive force.

When you're done watching that video, watch Rodney King's public statement to the media on the riots. Rodney King himself, a well-spoke if not particularly eloquent man who was quite nearly beaten to death by the Los Angeles Police Department, observed the ensuing LA race riots and spoke out against rioting, famously imploring people: "Can we all get along?" Watch the video. You can see the horror, the confusion, and the sadness on his face.

Then, imagine being beaten nearly to death, imagine successfully bringing a trial against the monsters who almost took your life, imagine losing that trial, and then imagine watching all of your supposed "supporters" burn your home to the ground, taking many African-American-owned small businesses with it.

Finally, imagine seeing all that and sympathizing with the mob. That is what today's woke social media leftists want you to do.

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Of course, it's impossible to sympathize with a mob. The mob will turn on you. You do not control a mob. All you can do is follow the mob wherever it goes, and if the mob chooses to drag you down, the mob will do so, and there's nothing you can do to stop it.

On social media, a woman suggested that my decision to speak out against violent riots "speaks volumes" about my supposed racism. On the contrary, however, I think it speaks volumes about the far left in today's society that they endorse the mob. Their memories are too short to remember the LA riots, and certainly too short to remember the race riots of the early 1960s. It has been utterly fascinating to contrast the ideological responses to racial violence then and now.

Perhaps if George Floyd had lived, he would have served as a cooling voice during today's riots, as Rodney King did almost 30 years ago. I don't know, of course. I know nothing about George Floyd other than that he was an innocent man murdered in broad daylight in front of a camera, and that American society has grown so accustomed to seeing such videos that we no longer consider them to be shocking.

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There were protests, which sadly turned violent, and there are think-pieces and social media updates. Everyone is navel-gazing about this, and while they do, they urge high-minded thoughts about the state of race relations in America today. Whites are urging each other to check their privilege and to learn about the black experience in America.

All such commentary is self-indulgent silliness.

While it's always a good idea to engage in self-improvement and to become a less bigoted person, white racism did not kill George Floyd. Police brutality killed George Floyd, systemic police brutality, fed with dollars from the War on Drugs and the War on Terror. A narcissistic, emboldened police force with near-immunity in the courts and one of the most politically powerful labor unions in the country killed George Floyd. A corrupt and unassailable criminal justice system that has financial incentives to murder and/or imprison blacks and latinos killed George Floyd.

You're not going to solve that problem by reading about Martin Luther King. You're not going to solve that problem by allowing more black voices a chance to be heard. You're only going to solve that problem by dismantling the police state.

It's natural for human beings, when confronted with an unsolvable problem, to assume instead that they are confronted with an easier problem, and to solve the easier problem instead.

Thus, and somewhat incredibly, we see that there is at least one problem in America that is a more unsolvable problem than racism: The police.

"Politics The Mind-Killer" And Other Stories

Twelve years ago, Eliezer Yudkowski introduced a concept that has taken root across the international community of smart people. In a blog post entitled, "Politics is the Mind-Killer," he writes:

People go funny in the head when talking about politics. The evolutionary reasons for this are so obvious as to be worth belaboring: In the ancestral environment, politics was a matter of life and death. And sex, and wealth, and allies, and reputation . . . When, today, you get into an argument about whether “we” ought to raise the minimum wage, you’re executing adaptations for an ancestral environment where being on the wrong side of the argument could get you killed. Being on the right side of the argument could let you kill your hated rival!

Right off the bat, he loses me. The ultimate thrust of his idea, is a good one. He concludes by saying simply, "It’s just better for the spiritual growth of the community to discuss the issue without invoking color politics." In order to arrive at this point, however, Yudkowski makes a terrible error that no one has ever bothered to go back and correct. Yudkowski thinks politics is an evolutionary response. I don't.

The fact that human beings are social is almost certainly an evolutionary fact. All of the great apes and most of the primates are social animals. It would be strikingly odd to discover that one of the most common primates was completely atomistic, in contrast to every other similar species. I think it's also self-evidently true that politics is a form of social interaction. From this, we'd be tempted to follow a chain of logic that goes something like this:

1. Social interaction is an evolved behavior.
2. Politics is a form of social interaction.
3. Therefore, politics is an evolved behavior.

This kind of analysis is so superficial that I'm surprised it could convince anyone. Consider an analogous argument:

1. Social interaction is an evolved behavior.
2. Laser tag is a form of social interaction.
3. Therefore, laser tag is an evolved behavior.

What's the problem here? Human beings evolved to link up with each other and behave cooperatively. Playing a game of laser tag certainly involves linking up with other human beings and cooperating, and thus involves a cognitive response that can be traced back through the millennia, but the specific context of a game of laser tag is completely disconnected from any evolutionary pattern. Laser tag is not a biological fact, but a technological one.

Humans put their evolutionary abilities to use to invent laser tag, just as chimpanzees put their own abilities to use to build nests in the trees. No one would argue that nests are a part of chimp evolution. Chimps evolved to sleep and to prefer comfort to discomfort; thus, over time, they discovered a technology that satisfied their needs. Humans evolved to reason, and to think up games to practice strategy; thus, over time, they developed a laser tag technology that satisfied their needs.

My argument: Politics is merely a kind of social technology*.

When we invoke politics, we're not engaging in something inevitable from out evolved biology, we're choosing a particular kind of social technology designed to facilitate cooperation. Ludwig von Mises would ask, Is the chosen means the best way to achieve the desired end? Well, doesn't that depend on what end one is working toward?

There is an unstated assumption among good people discussing an issue in good faith that we're all looking for the truth, and that if we can debate it and publicly investigate the evidence, eventually we'll all come the same understanding of an issue and agree on what is to be done. We commonly deride others when they "play politics," because on some level we know that politics is antithetical to the search for truth and evidence-based consensus. On some level, we all know that politics is more akin to short-circuiting rational analysis in favor of a cruder emotional response. In light of that, one possible alternate definition for politics is: Appealing to emotions to gain consensus when evidence and logic is insufficient or costly to present.

Consider any political issue about which you feel strongly. Any at all. Consider the things you most typically say about this issue. Does most of what you say consist of formal presentations of the best available empirical evidence, and a clear outline of the underlying logic in defense of a particular policy response? Or, do you mostly say emotional stuff about how the good guys agree with you, the bad guys disagree with you, and that anyone with a modicum of humanity should obviously prefer your policy set? Probably the latter, right? We tend to save our formal, empirical reasoning for our professional lives, mostly because it's hard work (i.e. "costly to present").

We humans are obviously not computers or robots. We evolved both logical and emotional cognitive abilities to handle different kinds of scenarios. Emotional appeals work particularly well in resolving the conflicts of love, for example, while logical appeals work well to get jobs done, put food on the table, solve immediate technological problems, and so on. Love is the glue of social cohesion, and so it's not particularly surprising to see people use emotional responses to attempt to solve problems of social cohesion.

For better or worse, the human species has flourished to the point that some of the things that used to be entirely about social cohesion, such as the distribution of resources within a community, have now become mostly technological problems. When we were hunter-gatherers that acquired resources communally, emotional appeals were probably appropriate means of requesting additional resources in times of need. In the modern world, the economy is so complex that acquiring additional resources can no longer be seen as a matter to be solved through emotional appeals. We now have technologies for the collection and distribution of financing, and many worthy causes that compete against one another for limited resources. The worthiest cause is no longer the one with an important moral claim or a particularly emotional backstory. The worthiest cause is the one that can make the best empirical case that it will put the resources to good use.

You can argue that this technology is cold and unfeeling, but you cannot argue that it isn't fair or that it doesn't distribute resources efficiently. Playing politics thus becomes a way to distract from the best use of our resources and to express emotional vigor over a particularly hard empirical problem to overcome.

Politics isn't a "mind-killer," exactly, but rather a technology best used to resolve individual emotional conflicts, rather than large-scale problems within the state.

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* Here I am using "technology" in the same sense that Mises would have used it.

Nihilistic Accelerationism

The currently favored meme among "shitposting" alt-righters is "clown world." That sentence is packed with references that will be unknown to many, and obsolete in a year, so let's briefly unpack it.

"Shitposting" refers to the practice of making largely unserious and frequently irreverent social media posts that one wouldn't necessarily want one's family or professional colleagues to see. For example, if I wanted to inundate the world wide web with pictures of the "circle game," my family would quickly grow tired of the gag, and my colleagues would think I was puerile. But, if I create an alternate social media profile, calling myself "RyLo Ken" or something, then I can post as many lame "circle game" pictures as I want to. Voila. Shitposting. Some people post inflammatory political content on their "shitposting account," some post lots of dad jokes, some post other dumb things.

Alt-righters are an ambiguous lot of people. They are predominantly of a conservative or right-wing political bent, but where the traditional right-winger is pretty serious about traditional, conservative morality (e.g. religious-based morality and straight-laced social presentation), alt-righters are essentially reverse-accelerationists. They have come to embrace the worst aspects of fringe left-wing culture in hopes of exaggerating it and hastening its ultimate demise. The classic alt-right example of this is overt racism: alt-righters start by embracing left wing notions of identity politics and intersectionalism, and then apply those theories to white males, resulting in white supremacy. It's not clear to me whether the alt-right's point is to literally embrace white supremacy or to simply use white supremacy as a means of making identity politics so intolerable to the left that identity politics are ultimately defeated. If the alt-right were to openly state that their embrace of identity politics is all an accelerationist ruse, that would render the point moot. So the world must unfortunately wait to see whether the alt-right was ever serious about white supremacy.

This brings us to "clown world," a series of memes in which Pepe the Frog (and anyone else, really) is depicted wearing a red clown nose and a rainbow wig. I think the original clown world pictures were just intended as ambiguous jokes. I went down the rabbit hole on this a bit, and it seems like the original clown world picture was simply posted with an open-ended question, "How does this make you feel?" That makes "clown world" kind of funny. Unfortunately, since the picture involved both Pepe the Frog, which has been used in various racist ways, and rainbow colors, which are emblematic of the LGBTQ pride movement, you can guess where "clown world" eventually went.

All of this represents a sort of mean-spirited cynicism. It's one thing to troll the overly earnest, cause them to clutch a few pearls for some laughs, and then move on with your day. (I don't condone that, either, but it is at least somewhat forgivable in a merry-prankster sort of way.) It's quite another to burn the Overton Window to cinders.

To put it simply, in order to buy into the alt-right's nihilism, one pretty much has to let go of everything: not merely all of your respect for other people, but even the notion that respect for other people itself is a virtue worth pursuing. Why else would you present yourself as maybe-a-nazi? It goes beyond promoting a set of ideas and into the realm of destroying the integrity of the notion of ideas. In other words, the project is not to win arguments and defeat ideas, but to eliminate the need for having an argument at all.

For a long time, I've been wondering why this sort of thing bothers me so much, and I think I finally have the answer. Ideas are, essentially, the conceptual equivalent of civilization.  Ideas are to humanity as personal relationships are to society. They are the foundation of advanced civilization, and if we're ready to give them all up - all of them, not just the bad ones, but all of them - then we are essentially giving up on civilization itself.

And you can easily recognize this in the alt-right. Their preference is for might-makes-right, and "alpha" behavior. They don't make heroes of Einstein or Feynman, they make heroes of Patton and Caesar. Warlords, generals, chieftains… This is the kind of civilization the alt-right is aiming at, and how could it be otherwise? The end of the road to nihilism is death, destruction and abnegation. You can't build a civilization on chiefs and strongmen. No one is strong enough to build a society, in fact. We need ideas for that.

Human society existed for eons as mere tribes of chiefs and strongmen; it wasn't until we started exercising temperance, restraint of force and passion and violence that we were able to climb out of mud hovels long enough to build a thatched roof; and from there, shingles, and sideboards, and so on. The brute could never have conceived of planting seeds and caring for them for months so that the tribe could be fed for a year. The brute couldn't conceive of it because the brute deals in force, not ideas. It required temperance to reach that realization, and temperance itself is an idea. Then, just as Mises describes in his writings on higher-versus-lower-order goods, each new development cleared the path for another, greater development; one technology building on the last and enabling the next. The wheel-and-axle is not just a physical technology, it's a template for how to build a machine. It is an idea.

Ideas are what build societies, and a society without ideas is a failed state. Therefore, nihilism is, in a way, the belief in a failed state. It's the belief that none of the things we believe in long enough to make the world a better place really matters. So nihilism can only ever produce an inferior world, and the longer we cling to it, the worse the world gets, all the way to the nadir.

And, frankly, that's why the alt-right will never win.

Books That Influenced Me

Tyler Cowen reminds us of a blog post he wrote seven years ago, “Books which have influenced me the most.” At the end of this earlier post, Cowen writes, “I would encourage other bloggers to offer similar lists.” It sounds like fun, and I’d like to do just that.

First, though, I need to add a caveat. Cowen’s book lists are interesting predominantly because Tyler Cowen is very secure in who he is. He clearly understands his role as a blogger. He’s a cultural critic as much as an economist, if not primarily a cultural critic. Every day we learn a little bit more about his personal tastes in books, music, food, and ideas. On his blog, he presents himself as the kind of person who can add interesting commentary to virtually any topic, the kind of person who functions as the most important guest at a party, even if not the life of the party. He’s the sort of man who can keep conversation headed down interesting and elucidating pathways, mostly by knowing how to ask the right questions. But if no one’s asking the right questions, he’ll gladly answer them himself, and then put the question back to everyone else when he’s finished.

In short, we’re interested in what books influence a man like that because a man like that is very interesting and has diverse tastes and thoughtful observations.

By contrast, who am I? I don’t mean to say that I’m unimportant or a nobody or that people shouldn’t care much about me – that’s not for me to say, anyway. I just mean to ask the question, if you happen to come across my blog for some reason, why should you care which books influenced me the most? It’s unlikely that you’re curious about that because you’re curious about how I think. I’m not the life of the party and I’m only recently learning how to ask the right questions. My observations can be controversial, but they’re unlikely to cause anyone to think and ponder for a long time.

No, you’d more likely be interested in a list like this to either get some random ideas for book suggestions, or to compare my list to the list of books you like best.

I’ll present my list in that light. This changes the contents of the list a bit, but don’t worry about that.

So here they are, in no particular order:

I. The Castle by Franz Kafka. I was already a Kafka fan when I found my copy of this book – a 2^nd English language edition – in the back of a moldy used book store somewhere in California. The thing I love most about this book is that, at the time I read it, I didn’t have a lot of experience with bureaucracy and didn’t fully understand what the book was about; yet as my life unfolded, my thoughts would return again and again to this book each time I encountered a relevant experience in my life. So the book and its themes and messages stuck with me even though I didn’t come to understand them until later.

II. Epistemological Problems of Economics by Ludwig von Mises. After Human Action, I think this is Mises’ most important work. Because of my personal interests, I learned far more from the former than I did from the latter. It is a wonderful book for learning “the economic way of thinking.” It’s also quite a bit lighter reading than Human Action, which helps its contents stick to your grey matter a little better. I think this should be required reading for undergraduate economics students.

III. The Island of the Day Before by Umberto Eco. It’s not his most popular book, but this one was seemingly written just for guys like me. It’s a book about a young man who commits himself to loving from afar. He never endeavors to win the heart of his love so that he can continue cherishing her from afar. This decision serves to influence everything else that happens in his life. In true Eco fashion, the various events in the story all come together in a superb metaphor unlike anything I’ve ever read before. And the ending is open-ended, left up to the reader on purpose. I won’t spoil the ending for you, but Eco allows us to finish it as we please, which is of course the whole point of the story.

IV. Atlas Shrugged by Ayn Rand. Screw the haters. Much has been written about what a terrible book this is. I always found the book to be a wonderful character sketch, probably because I actually knew people in real-life who had parallel characters in the story. The ideas in that book won me over from the more left-leaning political traditions, kindled my interest in economics, and served as a source of inspiration for many, many years. I’ve read this book several times and, sadly, I now feel a pang of shame whenever I pick it up, not because of what I think, but because of how badly people are excoriated for enjoying it. That’s not fair. This is a good book. It’s made big waves for valid reasons. No book is perfect. This is a good book.

V. Moby Dick by Herman Melville. This one just might get my vote for the greatest novel in the history of mankind. Surely it is the greatest novel in American history. I first read this book in junior high school, heavily abridged. We’d skip whole chapters and focus entirely on the action in the story. As a result, much of the meaning in the story was lost on me at the time. I still enjoyed the book, but not like I do when I read it now. To be honest, I am surprised the modern school systems allow this book to be taught as standard curriculum. It’s boldness in challenging sacrosanct American virtues like Christianity and Existentialism make it the kind of book that would likely be banned if more people understood what it was really about. But that’s the beauty of it, really. There are easter eggs in every paragraph of this book. The prose is directly allusive to specific works of Shakespeare, and to the Bible. Yet all the same, Melville manages to tell the tale in a merry, witty way, in a voice all his own, and to teach us something about “chasing the dragon” along the way. It’s a masterpiece.

VI. A Profile of Mathematical Logic by Howard DeLong. This is essentially a textbook of mathematical logic. As such, there is not a lot I can say about it that will interest blog readers, except to say that it is perhaps the clearest and most elucidating book on mathematical reasoning I’ve ever read. I’ve always been “just okay” at math. Reading this book helped me become “a math guy.” I’m still not a great mathematician, but at least now I can engage in mathematical thinking without fear. If you have the prerequisite math background, I can confidently say that this book can do the same for you.

VII. The Illuminatus! Trilogy, by Robert Shea and Robert Anton Wilson. I thank my sister for introducing me to this book. It is full of sex, drug use, and fowl language, but it is one of the best books a well-read person could possibly read. Almost every major book is referenced somewhere in this novel, and usually lampooned. The story is confusing and psychedelic. It’s reflective of the hippy culture that influenced. It’s a great book for all the wrong reasons, but it still somehow manages to present a wonderful vision of libertarian possibilities and radical freedom. I don’t recommend it for kids, but I do recommend it.

VIII. The Count of Monte Cristo by Alexandre Dumas. This classic and cautionary tale about vengeance and obsession is the kind of book that every youth reads about ten years earlier than they really should. While it’s certainly accessible to the more youthful reader, the situations it describes simply don’t mean as much until after one has a few more years under his belt. Unlike Dumas’ more popular The Three Musketeers, The Count of Monte Cristo’s primary source of action is its nail-biting dialogues. I think it’s superb how, over the course of the book, we gradually go from cheering for the hero to… possibly cheering against him? Hoping that someone stops him and that he learns his lesson? Again, younger readers will be dissatisfied by the fact that the hero doesn’t remain a hero all the way through, and that we’re left with a deeply flawed human being who could have been a hero. By adulthood, we can better appreciate ideas as heroes, rather than people.

IX. Better Training for Distance Runners by David Martin and Peter Coe. This is another textbook, one on exercise physiology. The technical sections can be a little dense, but if you don’t mind learning the basics, then the rest of the book will reward you with an excellent primer on how to train, really train, as a distance runner. I think a revised version of this book, with more simplified physiology sections and more compelling prose, would make an excellent book for high school coaches and athletes, and would make a lot people healthier and happier with their running.

X. Son of the Revolution by Liang Heng. This book is a personal account of what it was like to live through the Cultural Revolution in Communist China. It is important as a documented account of communist life, but it is perhaps even more important as a lesson in the universality of human reactions. The Cultural Revolution produced nation-wide witch hunts that evoke the mob mentality that envelopes any country when a mass delusion takes hold, whether it come in the form of “terrorists” or “drug lords” or “racists” or anything else. Liang Heng is a wise man who lived through a terrible set of circumstances, came out on top, and was willing to pass along his life lessons for the rest of us.

The Macroeconomics Of Good Thing Vs. Bad Thing

In which I explore the idea that economic analysis sometimes involves non-economic value judgments that color our conclusions.

Consider this a thought experiment. I'm not going to stake my life on the ideas contained in this post. Instead, I'd like to explore these ideas conceptually, and test them for weak points. In this post I'd like to think up instances in which a decrease in GDP might not be a bad thing. Can it ever be the case?

War

Suppose the nation is under attack from a despotic regime. The war is winnable, but not without some level of increased military spending. We need to equip and mobilize the troops, carry out strikes, and win the war.

The populace is ready and willing to help, so when the government announces that it will finance its wartime operations with some combination of war bonds, tax increase, and deficit spending, no one objects. In the classic national income identity of Y = C + I + G + nX, G definitely goes up - way up. Let's assume that consumer spending doesn't increase and that any changes to I are net (i.e. businesses perfectly reallocate their investments from "business as usual" to "we're in a war" purposes). At the expense of some (sustainable) inflation, national income goes up, up, up.

In a short while, and at minimal loss of life, we win the war! The nation briefly celebrates and then gets set to settle back into a new peacetime normal. 

The government has many options here, but what they decide to do is return military spending to pre-war levels and demobilize the wartime aresenal, etc. Ceteris paribus, G decreases, C might temporarily increase in the jubilation of triumph, but in the long run it remains the same, and I is as unchanged coming out of the war as it was going into it. 

GDP decreases. Bad thing?

Peace

Alternatively, consider a situation not unlike what the United States experienced in the wake of the September 11 terrorist event. U.S. consumers are said to have gone on a "spending spree," presumably because the violence of the attacks shocked us into a state of living for today. You never know when something terrible is going to end everything, so let's buy houses and vacations and luxury goods and live like we enjoy it for a while. 

Ultimately, however, the spending spree must come to an end. Either the consumers become so indebted that they are no longer solvent, or they simply deplete their savings and must replenish them. We could call this a "consumer-driven Austrian bubble" scenario, where an unsustainable boom occurs (although not for reasons of government interference). 

In this scenario, the economy is going to slow down, and it's not going to feel good. But the boom we've just experienced wasn't a "new normal," it was a temporary lift. Like a positive shock.

Should this kind of GDP decrease be viewed as "bad?"

Additional Comments

In the traditional view of things, the "war" lift is viewed as being good (in a weird way, even though it was a war), while the "peace" lift is viewed as being not good. 

Part of the reason I think people hold this point of view is that, when we're under attack, we have little choice but to defend ourselves. So wartime spending is seen as something that needs to be done regardless of economic considerations. Since it results in GDP lift, we tend to think of it as being good because "we had to spend the money anyway - at least national income went up."

To be clear, I don't think anyone consciously thinks that, I just think that this might be a subconscious reason why people view wartime spending as economically good.

By contrast, the peacetime spending is always viewed as an unsustainable boom. Long-range forecasts aren't built to assume that this kind of bubble will last forever, analysts know that it will eventually come to an end. It's not a question of "if," but a question of "when." Unlike wartime spending, we can't subconsciously view it as a "sunk cost" or whatever. It's not something we were going to do anyway, it's something we suddenly decided to do for reasons that made sense at the time, but which will not make sense in the future. Or at least, those reasons will be seen as unsustainable. 

In short, the first scenario seems to make the best of a bad situation, while the second scenario seems to make a perfectly fine situation, if not worse, at least confounding of long-term business investments. 

So think about investment for a moment. Suppose astronomers identify an asteroid headed straight for us, but with sufficient lead time that governments and private businesses can invest in research, development, and production capacity for devices designed to save the world. Here again, what we're actually doing is saving the world. The fact that this spells an increase in investment, and therefore national income, is icing on the cake. What we really want is for the world to remain intact and free of astronomical collisions. 

But the investment occurred for unplanned, unsustainable reasons - like, suppose it just became popular for every business to have a small zoo in their offices, for reasons of employee satisfaction - then we'd obviously see this as wasteful and harmful to the economy. 

I guess what I'm saying is that, when it comes to economics, "good" and "bad" often refer not only to the impact of shocks on national income, but also our subjective judgments of the wisdom those shocks for non-economic reasons. There's a value judgment baked into it that doesn't have anything to do with economics.

Good Explanation, Poor Prediction

Let's say you're overweight, have a bad diet, and never exercise. Let's say you go to the doctor for an annual checkup, and - for years - he tells you, "You've got to lose some weight, change your diet, and increase your activity level, or else you're going to acquire type 2 diabetes."

But, for years, you choose not to change your lifestyle and, for years, you fail to acquire type 2 diabetes. From time to time, some of your friends say, "Doctors like yours don't know anything about diabetes. They've been predicting that you'd become a type 2 diabetic, and yet it still hasn't happened yet!"

Then, one day, it happens. You're devastated. In a moment of weakness, your doctor says, "For years, I've been warning you that your poor health habits would result in type 2 diabetes - you should have listened to me."

Suppose you were to respond to your doctor as follows:

"True, for years you warned me and for years it never happened. So how useful was your warning? Not very. Clearly I have now acquired type 2 diabetes, but that doesn't mean your theory about weight, diet, and exercise is correct. What, if anything, would cause you to second-guess your beliefs?"

The moral of this story is: Sometimes ideas - even ideas we think are completely uncontroversial - have strong explanatory power but poor predictive power.

Bias Bias (Meta-Bias?)

From Bryan Caplan:

Why is the psychologists' approach so superior to the economists'? Simple. Economists reject all-pervasive testimony on lame methodological grounds. Psychologists, in contrast, aggressively cross-examine this all-pervasive testimony, and empirically expose its all-pervasive perjury. Despite what they say, people really are selfish, businesses really are greedy, students really are lazy, and workers really are materialistic. Econo-cynicism has a firm basis in psychological fact.

Of course, a "firm basis in fact" is hardly the same as "unvarnished truth." Some deviations from narrow self-interest handily survive cross-examination. Voting really is largely unselfish, workers really do obsess about nominal pay, and managers sincerely hate firing anyone. The point, though, is that the economic way of thinking is on much stronger empirical ground than economists themselves have managed to demonstrate. Though we've often belittled psychology, it's ably served us for decades. Perhaps if economists give psychologists some much-deserved credit for Social Desirability Bias, they'll be more eager to vouch for the value of what we do.

Does social desirability bias apply to discussions of social desirability bias? Will people be more likely to detect social desirability bias if they believe signalling acceptance of social desirability bias theories are socially desirable?

It sounds like I'm trying to be funny, but I'm not. Whenever we start talking about systemic biases, we raise implicit epistemological questions. How do we know that the bias exists without priming for it? But how can we prime for it without compromising the results?

In some ways I think the means-end approach of e.g. Ludwig von Mises neatly and effectively sidesteps this problem, but then again I have never been very warm to behavioral econ.

George Selgin Is Too Good A Writer

He's so good at composing his prose that it probably gets in the way of people who would much rather have "just the facts, ma'am." At least, that is the lesson I've drawn from his most recent post at Free Banking. (Hot off the presses! I'm blogging about it here because I can't be bothered to register at Free Banking in order to comment - which I am sure they are ultimately happy about, as my blog comments tend to get annoying sometimes. Just ask Daniel Kuehn.)

For all its colorful and delightful language, Selgin's post can perhaps be condensed into a single sentence:

Indeed, the only sort of thinking that I insist is unhelpful to doing good economics is thinking about, so as to better obey, the particular methodological credos of some school.

I am reminded of that old Frank Zappa quote, "Without deviation from the norm, progress is not possible."

It's possible that every valid method for conducting economic analysis was outlined by Ludwig von Mises - or anyone else, for that matter - a hundred years ago, but I doubt it. Science, social or otherwise, should always seek to discover new ideas about how to discover new ideas. Otherwise, it risks becoming an internally consistent but logically false circularity. See also: "Begging The Question Or Brainwashing Yourself."

Weather, Population, And Meltdowns

According to the New York Daily News, "the South" is still struggling to gain control of things after the "mild" storm that recently paralyzed most of Atlanta. The nation's more populous metropolises are scratching their collective head and wondering how two inches of snow could possibly wreak so much havoc on a modern American city. To me, though, it is not much of a mystery. I'd like to say a few words about it, as a public service to all my Canadian readers, and my readers who are from regions that frequently get much bigger snowstorms, and yet still manage to function as cities and communities.

My first point is the most obvious. However normal two inches of snow might be for you, in places like Atlanta, Georgia, it is rare. While your city might be well equipped with snow plows, tow trucks, snow tires, tire chains, snow blowers, salt or sand on the road, etc., cities like Atlanta and Dallas have no such infrastructure. The reason is because it's not a good investment. I know it seems like a good investment, now that we've seen what havoc can be caused by two inches of snow, but the real trade-off is: tens of millions of dollars of municipal spending on snow maintenance infrastructure on the one hand, and public school spending, the social safety net, civil servant salaries, etc. on the other. When you stop to think that, in Georgia, two inches of snow all at once is something that only happens once every few years, the trade-off is not as obvious as it seems.

A second, related, point pertains to the decisions public officials made to try to manage the situation once the snow started falling. I'll grant you that if the mayor of Atlanta or the governor of Georgia grew up in New Hampshire or Salt Lake City, he should have known better. But if you grew up in a region of the world where major snowfall almost never happens, how good should we expect your judgement about snowstorms to be? Similarly, how well do I expect people in Columbus, Ohio to deal with hurricanes? You get the drift (pun intended).

My third point pertains to population. Ludwig von Mises observed that

...there prevails a tendency toward a distribution of population over the earth's surface in accordance with the physical productivity of the primary natural factors of production and the immobilization of inconvertible factors of production as affected in the past.*

This is a glorified way of saying that people follow the money. Elsewhere, Mises also discussed the Malthusian law of population - you know, the old idea that population will grow to the point where it becomes unsustainable, and then we'll all die. But in Mises' opinion, this is just a caricature what Malthus wrote. Mises rather saw the Malthusian "law" as being a special case of the Law of Diminishing Marginal Utility - and he was right.**

What this means for Atlanta is this. People flock to Atlanta to avail themselves of its many redeeming qualities. What they find when they get there is: (typically) beautiful weather, a colorful culture, and excellent economic opportunities. I'd sure take that deal over a city that offered cold weather, an uninteresting local culture, and poor economic activities, wouldn't you? (Maybe this is why people fled Detroit and flocked to places like Atlanta.) But it's not a costless win. To get to Atlanta, you have to incur moving costs; but you also have to give up any of things you might have enjoyed about your old city. Maybe you don't mind giving up the cold weather, but you might miss the skiing. Maybe you don't mind giving up the non-existent nightlife of Butte, Montana, but you might miss the local tourist attractions.

Anyway, Atlanta also comes with its own drawbacks, which may or may not be deal-breakers to you. One such drawback, especially if you come from rural Georgia and move to "the big city" in order to "make it," is its large population. True, it's not as populous as many other American cities, but regionally speaking, it's up there.

Well, you'll notice there are no reports of crippling traffic jams and people sleeping in grocery stores from Athens or Macon or Savannah, Georgia, right? Much less are there reports of kids stranded at schools in Lafayette, or Anderson, or Tifton, or Douglas, or Inverness, or Troy... Is this because these cities all have better winter infrastructure? Or superior elected officials? Or better preparation? Not likely. No, the real reason is that smaller, more sparsely populated cities can better-handle freak storms than more populous cities (assuming, of course, that the storm does not result in total devastation) because the people in those towns do not have to worry about severe traffic jams and freeway travel. The roads might be equally as hazardous, but there are fewer people on them. There might still be car accidents, but commutes are shorter, so they have less of an impact on the victims' ability to get home. And so on.

Consider all of this when you ask yourself why "the South" has so much trouble with two inches of snow. My sister - who, like me, grew up in the snowy Intermountain West - also lives in the South. She laughs when school is cancelled over "a dusting of snow." But she lives in a small southern town, not unlike Rome, Georgia, where people can make due with bad weather conditions. But if you live in Atlanta, and the snow falls, and the heavy traffic grinds to a standstill, and the baby is crying and you need to buy diapers, you'd better believe you'll feel the hurt.

___________________
* von Mises, Ludwig, Human Action, p. 627
** Ibid., p. 129, which reads as follows:

The Malthusian law of population and the concepts of absolute overpopulation and under-population and optimum population derived from it are the application of the law of returns to a special problem. They deal with changes in the supply of human labor, other factors being equal. Because people, for political considerations, wanted to reject the Malthusiam law, they fought with passion but with faulty arguments against the law of returns?--which, incidentally, they knew only as the law of diminishing returns of the use of capital and labor on land. Today we no longer need to pay any attention to these idle remonstrances. The law of returns is not limited to the use of complementary factors of production on land. The endeavors to refute or to demonstrate its validity by historical and experimental investigations of agricultural production are as needless as they are [p. 130] vain.

Let's Talk About Liberty

Over the years, Jeffrey Tucker has managed to amass an admirable amount of goodwill from within what we might call "the liberty movement." I don't know his full biography, but I do know that he connected with Murray Rothbard early on; he served as editor of Mises.org and has been an instrumental member of the Ludwig von Mises Institute; he is a successful author and speaker; and he has a huge online following. My sense is that, while he probably never set out to become a celebrity, his public persona is so likable that his celebrity was basically inevitable.

I've always been somewhat interested in the celebrity business model, from a pure economic standpoint. Most of us have to develop skills that we then sell to employers. Career or economic success for most of us is a function of the skills we develop and their usefulness to other people. For celebrities, the case is a little different. Celebrities have found a way to be interesting simply by being themselves - by being funny (like stand-up comedians), or by being fun to hang out with (like Paris Hilton), or by being good at playing a sport or a musical instrument. Especially in that last case, it's not even sufficient for a celebrity to have disproportionately high skill. John Mayer is no better a singer or guitarist, for example, than half the state of Texas. It's not his skill set that makes him interesting, it's his "John-Mayer-ness," the fact that he is interesting for being who he is.

And so it is with Jeffrey Tucker. I don't want to minimize his knowledge or skills - he obviously wouldn't be where he was if he lacked either. But there are many people in the "liberty movement" who have not enjoyed the same level of fame as Tucker, and as I said, I think this has a lot to do with his likability.

What does one do with a huge stockpile of likability and a large following? Capitalize! What else? Tucker co-founded the Laissez-Faire Book Club, which seems to be a sort of Amazon-cum-Netflix for libertarian literature. I'm out of the loop on this stuff, but it seems to be going well. But it also seems that Tucker's work with Mises.org, with LFB.org, and so on, were all a prelude to the main attraction: Liberty.me. Here's the launch video:

You can read about the launch of Liberty.me and what amenities it promises you here. I am trying to remain agnostic on the idea, but I have to admit that I am very curious.

It seems to bill itself as a subscription-based digital community. Sort of like MySpace (much moreso than Facebook or Google+) for libertarians. But this really only appears to be the attention-getting device. Liberty.me also provides access to e-books and information on... how to be a libertarian, I guess. How to interact with law enforcement, how to invest your money, how to protect your online privacy, and so on.

Some this will obviously appeal more to some than others. Those with a high interest in how best to interact with law enforcement are obviously those whose daily behavior marches a little closer to the edges of the page than the center, if you know what I mean. And while everyone has an interest in investing, one does get the sense that the kind of advice you'll be getting at Liberty.me will reflect the founding members' interest in such things as precious metals, Bitcoin, and whole life insurance. Not that there's anything wrong with that.

For me, there are two primary sources of appeal here. The first is that, by creating what is essentially a gated libertarian community, complete with its own exclusivity, they make people like me think, "What kinds of cool things will I miss out on by not joining?" Will something really useful and interesting pop up, that I would otherwise not have access to? The liberty movement is pretty innovative, and if that innovation recedes into the proverbial Galt's Gulch of gated online communities, then it is only to the detriment of non-participants.

The second source of appeal is what the promotional materials refer to as "a built-in audience." The Stationary Waves audience has loose ties to the liberty movement. Liberty.me could potentially compete with my audience, which is certainly not "built-in." Of course, that depends largely on how successful the launch is, how large the community is, and so on.

At a price of $100 for a year-long membership - which, do note, is a reduced price - the barrier to entry is high enough to create a real sense of exclusivity. I suspect that many people will not elect to pay, but at the same time, the "liberty movement" never ceases to impress me. So I suppose we shall see how it pans out.

I mention it here at Stationary Waves because it is an interesting development. I am not yet ready to take the plunge, myself. Being the individualist that I am, I seldom benefit from community membership of any sort.

Capitalism's Collapse: A Response To David Simon, Part I

Via Facebook, I have been directed to an article in The Guardian in which one David Simon puts forth an argument that "capitalism" defeated communism, and will next defeat "itself" by defeating "democracy."

To some leftists and youngsters, I suppose this argument seems novel and compelling. The problem is that the matter was given thorough treatment at the turn of the (last) century by Josef Schumpeter and others.

I'd like to tackle Simon's arguments directly, but before I do, I'd like to tell a brief story about the Schumpeterian critique of "capitalism" as I remember learning it. I do have a couple of very well-educated experts in this field occasionally reading this blog, so I should add one disclaimer: I might not have it exactly right, and you're free to correct me. What's important to me (a layman) is moreso the thrust of the matter than the academic particulars.

The Stationary Waves Guide To Schumpeter's Critique Of Capitalism
Again, this is the argument as I remember it, not necessarily as it actually was. Your best bet here is simply to consult the source material. I did, but that was fifteen years ago. And since I don't have to call this stuff up regularly in a professional context, you will hopefully forgive me of a few inaccuracies.

Schumpeter studied economics during a time when the Marxist-Weberian "German Historical School" reigned supreme in academic Germany/Austria. A few of the Historical School's ideas were important contributions to political theory - in particular, Max Weber's ideas about power dynamics and their impact on social interaction - but the vast majority of their economic ideas were grounded in logical error, empirical inaccuracy, methodological error, and theoretical unsoundness. To gain a better understanding of the particulars of their errors, I recommend starting with Mises' Epistemological Problems of Economics.

This period of academic history was not solely about the German Historical School's dominance over academic discourse, but also about the emergence of the Austrian School, and the so-called "Marginal Revolution" more generally.

It was in this setting that Schumpeter found himself coming of age. He was well-versed in Marxist dogma, and also well-versed in economic marginalism. Thus, he had a unique and whole picture of the full body of economic theory developed up to that point in time. He was also a gifted mind who had many remarkable ideas himself. Thus, he began to craft a certain vision of economics...

To the chagrin of many of his free-market contemporaries, Schumpeter appreciated some of Marx's critiques of capitalism. Schumpeter agreed with Marx this much: he agreed that capitalism would eventually collapse under its own weight. Schumpeter greatly disagreed with Marx about the mechanisms of that collapse, however.

And so does everyone with even a minimal understanding of economics. Marx's argument was that, as business owners continued to invest more money in capital factors of production, their produce would continue to decrease in value. That's because Marx believed that the value of a product was based on the human labor that went into producing it.

To really wrap your head around this error, consider a farmer who plants a potato seed. According to the argument laid out by Marx and Engels in Das Kapital, that potato is worth more money (i.e. has a higher intrinsic value) if it is planted using a man's bare hands than if the farmer has access to a hoe and a little bag of seeds attached to his belt. That's because the hoe and the bag are both forms of productive capital. What is a 1-hour job with your bare hands becomes a 15-minute job with a hoe. 15 minutes is 25% of an hour. The value of the resulting potato is thus 25% less than it was prior to the investment in productive capital.

The problem gets worse as the farmer modernizes even further. He buys a larger plot of land and starts using heavy farm machinery to plant and sow potatoes. A day's work used to yield him several bushels of potatoes. Now he produces thousands. More production, but less labor input, in the Marxist model, means that the potatoes themselves are less valuable. That's obviously not correct*.

Schumpeter did not subscribe to the same intellectual errors that Marx did. Still, he empathized with the idea that capitalism would out-grow and destroy itself. In Schumpeter's model, however, the mechanism for collapse is not an ever-diminished labor-value, but rather the very profound insight that large companies are less dynamic than small ones. Therein lies an important contribution to the body of economic knowledge.

In the Schumpeterian world, human progress relies on "entrepreneurs," creative individuals who can anticipate market trends and invest in new ideas to drive additional economic progress. First, they develop a new idea (or borrow one from someone else). Next, they bring the idea to market, and because they have guessed correctly, they make a killing. Their business operations grow and grow until what started out as a small, ambitious idea has matured into a large-scale operation. You can think of it like Apple Computers, where it starts out in somebody's garage, and after a decade it has become one of the largest and most highly valued companies in the world.

At that point, according to Schumpeter, things reach a new tipping point. Large corporations can very effectively mass-produce an existing product. But developing new products becomes difficult because their existing corporate structure cannot easily adapt to new business models. Imagine if Apple suddenly started selling microprocessors. They would have to invest in all-new factory technology, train new staff, fire old staff, and so on. They may be able to do this, but it takes time.

On the other hand, a small entrepreneur can start up a small-scale microprocessor manufacturing operation much more easily, provided he or she can raise the initial funds. Schumpeter observed that it would be easier for new entrepreneurs to adapt to new trends and capitalize on them than it would be for large corporations to do so. He thought this was a healthy process. It was a bit of a life-cycle: entrepreneur makes good, grows big, becomes a dinosaur, and ultimately loses the race to the next generation of entrepreneurs.

But Schumpeter also predicted that large corporations would eventually become so large and powerful that they would eventually stamp out all competing new entrepreneurs. Nor would they be able to provide fora for those new entrepreneurs from within the corporate structure. As such, Schumpeter thought capitalism would eventually become hostile to innovation and collapse under the weight of an enduring, sluggish stagnation.

If you think this sounds eerily prophetic, you're not alone.

Conclusion
It's important to keep all this in mind because when you read a piece like David Simon's Guardian article, you might be tempted to suggest that Simon and Schumpeter are really saying the same thing. But really, they're not.

Simon is making an argument more like Marx's. In fact, Simon states outright (emphasis mine):

You know if you've read Capital or if you've got the Cliff Notes, you know that his imaginings of how classical Marxism – of how his logic would work when applied – kind of devolve into such nonsense as the withering away of the state and platitudes like that. But he was really sharp about what goes wrong when capital wins unequivocally, when it gets everything it asks for.

For David Simon, then, it really is a Marxist story, and not a Schumpeterian one. The main problem with Simon's article is that he embraces a view that has been soundly rejected by modern economics as a discipline for nearly 150 years. Meanwhile, Schumpeter offers a view that is equally and oppositely endorsed by economists of all ideological stripes.

In my next post in this series, I will attempt to tackle the specifics of Simon's argument and show why he is wrong about economics and capitalism, and why his views are out-of-date to the tune of five or six generations of academic thinkers.

___________________
* I encourage you to read Marx & Engels criticism of capital investment and understand this for yourselves.

Framing

Exact sciences come with the benefit of pure empirical validation. We test, we measure, we assess, and our theories live or die by what we observe. This kind of purity, rooted in the concept of duality or difference, ensures that our compass is always pointing in the clearest direction we can see subject to our current understanding. If something doesn't make sense, we revise our understanding with further testing and observation, which feeds our theories, which are subsequently re-tested and re-evaluated, and so forth.

This is why everyone (okay, almost everyone) loves science. It's precise. It gives us knowledge, and with knowledge comes control over the future.

Social sciences, however, behave a little differently. While the likes of Ludwig von Mises might argue that social sciences generally consist of a priori and axiomatic logical descriptions, I don't really like to look at it that way. The reason I don't is because that description carries with it the implication that truth in social sciences is actually knowable. I'm not so sure it is.

Easy there, big fella, I haven't gone all wishy-washy, post-modernism on you. I still believe in an objective truth, just as I always have. The thing about social sciences is that there is no real truth there to determine, objectively or otherwise. Let me explain.

Psychology, For Example
Freud may want to interpret your dreams using a framework of psychoanalysis. He might even listen to you, hear you, understand you, and give you information that helps you heal. But still, there is no one, correct way to interpret a dream. Sometimes a cigar is something, and sometimes it's just a cigar. It's not as if a more well-honed theory will tell you when a cigar is or is not a cigar. Rather, it's a question of what the psychoanalyst's intellectual framework is, and how well it fits the needs of the listener. There's a bit of a matching-model involved. Maybe Dr. Jones and his analytical framework can help you. Or, maybe what you really need is Dr. Smith's model. And even if you do need Dr. Smith's model, it doesn't mean someone else wouldn't be better off going to see Dr. Jones rather than Dr. Smith, dig? This is why many therapists encourage patients to shop around a bit; they know that their approach works for some patients and not for others.

And that's okay, because there isn't a single psychological truth to discover. It's really about finding the theory that frames your situation in a way that provides clarity and comfort. Here, have a cigar...

Economics, For Example
Considering what I just said about psychology, it should come as no surprise that I am starting to lose interest in the various economic-theory disputes out there. It's ludicrous to argue about whether or not we're in a liquidity trap. It's pointless to banter about Keynes-versus-Hayek. And those New Classicals don't have it all straight, either.

The reason everyone's wrong isn't because economics is worthless or that I have another preferred theory that I think is true. Rather, there is no one, great economic truth to know, thus the objective truth itself is unknowable in this situation, too.

Economic theories are still incredibly useful - all of them. The Keynesian models, old and new, both provide an interesting intellectual lens through which to interpret some of the economic events that occur during our lifetimes. So does the Austrian "model," and all the others. But no one theory or approach is going to explain everything about the economy, that would be pretty stupid. No one expects that "science" will eventually discover an econometric model so precise that it can predict tomorrow's economy within a few standard deviations.

Instead, we experience life, and economic events along with it. We can make sense of many such events by applying the various intellectual frameworks, the economic theories and macro models, and paying attention to what clarifies and what does not. Your favorite model may apply perfectly today; it may not apply at all tomorrow, and it may not have yesterday.

The key seems to be matching things up. We must match the economic theory and the situation based on what provides clarity and good predictions. When something outlives its usefulness, we can set it aside. At all times, though, we should be working to match the circumstances to the model that best describes it.

Conclusion
When we don't have the benefit of applying an exact science to our quest for knowledge, we have to make due with weaker theories. That's fine, they can still shed light on our situation. But remember: they also might not be useful at all. Weber's explanation for today's sociological trends might make no sense to you whatsoever, and if not, there's no sense forcing a square peg into a round hole, so to speak. Apply the theory that fits, then revise as you go. When a theory outlives its usefulness, find a new one.

Hard science provides empirically validated theories. Social sciences provide framing, intellectual models that can help make sense of a situation. The model is not the truth; it's not even close to the truth. It doesn't even function as a source of knowledge. It's just there to help you see things clearly. And if it's not helping you see things clearly, you should find a new one, because it's not the law, it's just a framework.

It's Not Scientific Method, It's Epistemology

Jason Brennan talks a priori theory again. What follows is something I originally intended as a comment at that link, but ultimately decided to turn into a blog post of my own.

Jason and the (possibly entirely imaginary?) psychologist are debating an aspect of epistemology; it has nothing to do with either psychology or economics. Consider the following.

Every child must become aware of the concept of duality. At a certain point, the child discovers that any object - let's say her security blanket, for example - is not the same entity as her self. 

Now, in order to discover that there is a "me" and a "not-me," the child presumably has to do some kind of experimentation: it hurts when I bite my own hand, it doesn't hurt when i bite the security blanket, and so on.

The entire debate amounts to this: When the child conducts this kind of investigation, is it purely by accident, or does the child have some theory involved that is confirmed when she experiences pain or not? Perhaps even the first experience of pain versus not pain is an empirical observation through pure accident; but then it is at that point that the child develops the theory (a priori theorizing), and subsequently tests to confirm (empiricism).

I'm not sure we can answer this question definitively, but I think that e.g. Mises makes a strong case for the fact that it's impossible to empirically observe something without getting a priori theory involved first. Consider the following excerpt from Epistemological Problems Of Economics (emphasis added):

New experience can force us to discard or modify inferences we have drawn from previous experience. But no kind of experience can ever force us to discard or modify a priori theorems. They are not derived from experience; they are logically prior to it and cannot be either proved by corroborative experience or disproved by experience to the contrary. We can comprehend action only by means of a priori theorems. Nothing is more clearly an inversion of the truth than the thesis of empiricism that theoretical propositions are arrived at through induction on the basis of a presuppositionless observation of "facts." It is only with the aid of a theory that we can determine what the facts are. Even a complete stranger to scientific thinking, who naively believes in being nothing if not "practical," has a definite theoretical conception of what he is doing. Without a "theory" he could not speak about his action at all, he could not think about it, he could not even act.

And, much later, in Human Action:

In asserting the a priori character of praxeology we are not drafting a plan for a future new science different from the traditional sciences of human action. We do not maintain that the theoretical science of human action should be aprioristic, but that it is and always has been so. Every attempt to reflect upon the problems raised by human action is necessarily bound to aprioristic reasoning. It does not make any difference in this regard whether the men discussing a problem are theorists aiming at pure knowledge only or statesmen, politicians, and regular citizens eager to comprehend occurring changes and to discover what kind of public policy or private conduct would best suit their own interests. People may begin arguing about the significance [p. 41] of any concrete experience, but the debate inevitably turns away from the accidental and environmental features of the event concerned to an analysis of fundamental principles, and imperceptibly abandons any reference to the factual happenings which evoked the argument. The history of the natural sciences is a record of theories and hypotheses discarded because they were disproved by experience. Remember for instance the fallacies of older mechanics disproved by Galileo or the fate of the phlogiston theory. No such case is recorded by the history of economics. The champions of logically incompatible theories claim the same events as the proof that their point of view has been tested by experience. The truth is that the experience of a complex phenomenon--and there is no other experience in the realm of human action--can always be interpreted on the ground of various antithetic theories. Whether the interpretation is considered satisfactory or unsatisfactory depends on the appreciation of the theories in question established beforehand on the ground of aprioristic reasoning [13].

Aprioristic Theory

If you read the kind of blogs I read, then you're already aware of the minor controversy sparked by Jason Brennan's dramatized account of a conversation he had with a self-declared Austrian School economist. His post isn't that lengthy, so read it.

No? Okay, fine. I'll summarize it for you. The conversation goes something like this:

Brennan: Behavioral economist seems to suggest that people sometimes behave irrationally. 

Austrian: There's a difference between "behavior," which is the purview of behavioral economics, and "action," which is the purview of Austrian School economics. 

Brennan: This should challenge your view of economics, since empirical behavioral economic research seems to suggest that people contradict your a priori predictions.

There have been a couple of responses written to this already. I haven't read them. (Okay, I skimmed the one that was posted on the Mises Institute Blog.) But I do have a few thoughts on this.

Fallacies
First, I think Brennan correctly described a "no true Scotsman" fallacy. Humans act rationally, at least insofar as the study of rational action (Misesian economics) is concerned. If someone discovers empirical evidence for apparently irrational action, the only valid responses for an economist of the Misesian tradition would be: (a) come up with a theory that shows how the action is actually, on second thought, rational and not irrational at all; (b) account for methodological errors in the empirical research; or (c) withdraw the claim that economic actors always act rationally. One cannot simply dismiss empirical research by saying, "No true human action is irrational!"

Rationality
Second, I think Brennan's interlocutor was incorrect when he stated that there is a difference between "behavior" and "action." If there is a difference, it is merely semantic. On the other hand, it could be that Brennan didn't fully appreciate the Austrian School economist's point. A more charitable interpretation of his comment is as follows: Psychology is psychology, and economics is economics; they describe different aspects of human decision making and ought not be mixed. If this is what Brennan's interlocutor had in mind, then the question is very different indeed.

To wit, action that is psychologically irrational is not necessarily economically irrational. Here's a good example: Eating so much pie and ice cream that your stomach hurts. On a psychological level, this defies rationality, because the purpose of eating all that dessert was to feel good and be happy and enjoy ourselves. In light of that fact, it makes no rational sense to keep eating when you're already feeling bloated and uncomfortable.

But the economist has a much lower standard of rationality. The economist need not reconcile competing psychological urges, because they don't impact the economy. Only action impacts the economy. Thus, it doesn't matter to the economy whether you have a stomach ache from eating so much pie; it only matters how much pie you ate and why. Once you have a stomach ache, that becomes a different economic question entirely; namely, which over-the-counter stomach medicine will you buy? how much time will you have to take off work? if you do this every day, how much will it cost you to manage your eventual type two diabetes? and so on.

The psychologist wants to study and describe the tension that exists between the desire to eat a boatload of pie and the desire to act in one's own best interest. The economist doesn't care how much tension exists between those two motives. The economist acknowledges that some people eat a lot of pie, some people eat only a little bit of pie, some people prefer cake, some people cannot eat pie due to dietary restrictions, and there are prices and quantities involved.

In short, an apparent psychological conflict should not pose a conflict to the economist. It's not a subject of economic purview.

But Then Why Do Economists Keep Saying People Are Rational?
The economist knows why someone would eat too much pie: it tastes good; the actor is moved to act on that opinion; some subset of people have poor impulse control; it is what it is. But there is nothing irrational about the eating of a large quantity of pie. Pie tastes good, that's why someone eats it. There isn't much more to it than that. (Remember, economic standards of rationality are lower than psychological standards of rationality.)

This even holds true for the various other quirks discovered by behavioral economists: People tend to sacrifice some personal monetary benefit for the sake of others, people sometimes make calculation errors that cost them money, people subscribe to superstitions, etc., etc.

The only reason a behavioral economist would see this as "irrational" is that perhaps the behavioral economist holds the misguided viewpoint that economic actors are strictly money-utilitarian in absolutely every circumstance. In that case, why wouldn't someone keep all the money for himself? What-ho! We've proven that even when people have a chance to take all the money, they leave some for others! Irrational!

No, it's not irrational. It's perfectly rational. People derive utility aka happiness from things other than money. They derive utility from justice, and morality, and altruism, and all sorts of stuff.

What's disappointing is that everyone already knows that. Behavioral economists who want to make the claim that people do not always act rationally - and let's be clear that this is not all behavioral economists, only the bad ones - are really just saying that some economic decisions cannot be fully accounted for using a framework of continuous demand functions that express utility only in terms of the monetary value of quantities of goods and services.

Most people don't need to be told that there's more to life than money and wealth, and I don't know a single person who would describe that fact as "irrational."

A Couple Of Loose Ends To Tie Up
I might prefer two oranges to one apple. I might prefer four apples to three oranges.

How is this possible? Doesn't this mean that my indifference curves are all discontinuous and arbitrary and we can't predict how many apples correspond to how many oranges in my mind? Yeah, I guess it does mean that. That's because there are all sorts of things that play into my economic decision making. Like, maybe I prefer an even number of fruits to an odd number in all circumstances. This might because I have a psychological problem like OCD, which would mean that I am psychologically irrational, but not economically rational, since I am acting according to my preferences. Or, perhaps I'm interested in juicing the fruit rather than eating it, and I can get more fruit from four apples than I can from three oranges, but more fruit from two oranges than one apple.

Or, perhaps a million other things. I'm just making stuff up here. The point is that there are many conceivable reasons why a demand schedule might not perfectly translate into a homogeneous function. One of the great strengths of the Austrian School of economics is that there is no great need to fit human behavior into calculus functions. This enables us to examine economic behavior first, and draw lines on charts second.

Granted, the Austrian approach might not be appropriate for absolutely every situation. If the majority of market-makers in the finance world use elaborate macro-models to invest millions of dollars for their clients, it might be in my best interest to use a similar model, myself. Refusing to do so for the sake of methodological purity would just be stupid.

So the various "camps" in economics shouldn't really be arguing about "behavior" versus "action," they should simply choose a variety of different methodologies and go with the one that has the greatest explanatory power in the situation being analyzed.

Conclusion
I don't think I've "resolved" any apparent "conflicts" here. I just wanted to get all this off my chest. It is kind of a stupid argument. Economics has the power to offer great insight into the world of human decision making in environments of competing resource allocation. But it also has the power to be so obtuse that the various debates cause more confusion than they clear up.

Also, I think most economists understand this. I think some non-Austrian-School economists dislike the general attitudes of some Austrian School economists, and thus like to make things personal while giving the situation an academic veneer. I'm not accusing Brennan of that, but I do think he could have thought a little more carefully about what his interlocutor was saying. Likewise, that Austrian guy, whoever he was, could probably benefit from thinking through what behavioral economists are saying.

Or maybe he already did all that, and he's good.

Some Links

• Kevin Erdmann has an excellent post about unemployment.
• Alex Tabarrok brings our attention to the news that India is adding a "none of the above" option on their future ballots. How might such an option play out in the United States, I wonder?
• Tyler Cowen supplies us with this Bloomberg link that looks more or less like an ObamaCare "fact check." Cowen calls it "very good," but I would call it "just okay." The author should have reduced the number of points and only addressed those for which she had strong, tangible arguments.
• Speaking of health care, Donald Boudreaux discusses the impossibility of economic price calculation when health care prices are socialized. This is a good companion piece to my recent point about ObamaCare.
• I link to this Anti-Gnostic post not because it's interesting, but because it's deplorable. The point is clear: he's saying that European peoples have accomplished more than non-Europeans because there is less in-breeding in Europe. It is a theory supported by nothing other than the graphs he supplies, and steeped in ethnocentrism. The Steve Sailer crowd would prefer I not call this racism, but what else do we call it?
• Here's a brief, interesting point about the Misesian approach to economics that I think plays well into my rules-versus-merit framework. 
• This baffling Penelope Trunk post about Huma Abedin highlights (unintentionally) the left's need to turn leftist politics into some combination of religion and fairy tale. Here I must exclude the far left, which has a much less romanticized view of politics and politicians, and that gives me the sickening feeling that the centrists in America are more wrong than the extremists on any end of the political spectrum. But maybe this just means that Americans are finally starting to shrug off the shackles of the Democrat-Republican false dichotomy, and each one of us is coming to that point of view our own way, some from extreme leftism, some from extreme rightism, some from extreme libertarianism, and so on.

Well, that ought to get you all caught up on the blogosphere after my two-week absence!

Math Is Important

Jonathan Finegold-Catalan discusses a quote supplied by Robert Murphy. Unless I'm mistaken, Murphy's original intent with that post was merely to highlight the occasionally hilarious use of absolutist language in Mises' writing style. So we should not take Catalan's point as any kind of quibble with Murphy, so much as a tangential exposition.

Anyway, Catalan's post is worth reading and thinking over. I'm not going to excerpt it because it's reasonably short, and I don't think I can describe his point in a more concise way than he did. So go read it. The general question is to what extent Mises objected to the use of "empiricism" (understood here to mean the statistical analysis of historical economic data) in economics. Catalan reasons that if Mises objected to its use - and it is commonly believed that he did - then Mises was wrong to do it wholesale. In short, there are important applications for quantitative analysis in the field of economics.

I seem to recall (and, indeed, here it is) a Mises Daily article covering with academic precision the difference between how Mises saw "history" and how he saw "economics," i.e. theory. And, if memory serves me right, there were elaborations on this throughout the Austrian blogosphere from (I think) Peter Boettke and Steve Horwitz. But don't hold me to that; this is just what I seem to remember.

Anyway, under Salerno's paradigm outlined in that Mises Daily article, Mises felt that "empiricism" was a legitimate question for economic history, while all questions of economics were a matter of pure theory, and thus mathematical models would be of very little use in that arena. This strikes me as being a well-balanced position, and I have no reason to object to that.

I'm not one of these guys who "knew Mises" or "knew the guy who studied under Mises," so I will defer to what those folks say about how Mises felt about empiricism.

What I will say is this: My reading of Mises is always quite a bit more moderate than the typical Austrian economist's reading. I interpret the Murphy/Catalan quote to mean simply that any conflict between the empirical facts and the economic theory needs to be resolved, either by revising theory to make it more exact, or by refining the quality of one's empirical model. In the worst-case scenario, maybe we could say that the empirical model is too much of an approximation to yield a perfect 100 R-square.

I mean, call me stupid, but I have never gotten the impression from any of the Mises I have read that he opposed empiricism so much as felt that descriptive theory is what mattered most. As you say, I think most people already accept that idea, but from what I learned in my old History of Thought course 10 years ago, I had the impression that socialist economists and Soviet planners were moving toward a "mathematical economics" viewpoint where the economy could be planned and assessed via matrix algebra, and this was the kind of thing Mises objected to. Again, in this day and age, who doesn't?

I will add that society has become far more mathematical since the days of Ludwig von Mises. Even my parents grew up in an age when few adults had any reason to know calculus. In contrast, I myself use it almost every day. More to the point, though, society's ubiquitous conversations about growth rates and rates of change of growth rates and derivative finance exchanges and so on and so forth reflects society's growing comfort with calculus and post-calculus mathematical concepts as modes of thought. 

To put it another way, every child learns what a mathematical vector is in grade school. Nobody ever sits down and does the kind of math that they teach kids about vectors, though. Instead, we get into physics courses in high school - or advanced mathematics courses in college - and come to understand that a vector is a way of mathematically expressing position, direction, and force in a concise and usable way.

Now, physical sciences can directly apply calculations to vectors. Social sciences - and ordinary people in general - can still use vectors as a sort of "theoretical tool." You can start to see things in your life as "vectors" of sorts. Your career path could be thought of as a vector. Your level of anger in an argument. Or whatever.

The point is that one of the benefits of understanding complex mathematical concepts is that they provide logical insights that we wouldn't otherwise see. What's important, of course, is being able to apply those concepts to our lives theoretically in a meaningful way. In that sense, theory always trumps pure math when we're seeking to understand the world. But it's not a one-way thing. Math influences how we think, and thinking influences how we use math. That's because math is in many ways the formalized version of how humans think, anyway. Wherever a good idea comes from is a good source of knowledge. Those who rule out math as a source of insight demonstrate a lack of appreciation for what mathematics actually is.